Business Context and Reporting Period
This Form 8-K was filed by Ares Commercial Real Estate Corporation on June 28, 2016. The filing reports the entry into a Material Definitive Agreement to divest a specific business segment.
Key Financial Metrics
This filing does not contain standard periodic financial statements (revenue, profit, cash flow, margins, debt, or liquidity). The primary financial metric disclosed is the transaction value for the sale of the Company's mortgage banking business.
- Transaction Consideration: $93 million in cash.
- Purchase Price Adjustments: Subject to working capital adjustments, a $1.15 million adjustment for change of control payments, and a potential adjustment of up to $3 million based on 2016 revenue items.
Material Changes
The Company entered into a Purchase and Sale Agreement with Cornerstone Real Estate Advisers LLC to sell all outstanding common units of ACRE Capital Holdings LLC, the holding company for the Company's mortgage banking subsidiary, ACRE Capital LLC.
- Expected Closing: Within three to six months of the agreement date.
- Restrictions: The Company agreed to a two-year non-competition and non-solicitation agreement.
Outlook, Risks, and Contingencies
The transaction is subject to several material conditions and risks that could prevent closing:
- Regulatory Approvals: Requires consents and approvals from U.S. Government-sponsored entities and governmental entities.
- Conditions Precedent: Includes customary bringdown of representations and warranties and the absence of a material adverse effect on ACRE Capital prior to closing.
- Termination Rights: The agreement includes rights to terminate upon denial of regulatory approvals or material breaches. The initial outside termination date is December 31, 2016, subject to two successive 30-day extensions.
- Indemnification: Provisions exist for losses relating to breaches of representations and warranties, subject to limitations.
Investor Verification Checklist
- Verify the receipt of required regulatory consents from U.S. Government-sponsored entities.
- Monitor the satisfaction of closing conditions, specifically the absence of a material adverse effect on ACRE Capital.
- Track the final purchase price adjustments regarding working capital and 2016 revenue items.
- Confirm the actual closing date falls within the expected three-to-six-month window or if extensions are triggered.